Pathways towards economic security and Universal Basic Income

Long before Universal Basic Income (UBI) became caricatured by its opponents as a Silicon Valley conspiracy or an attempt to lay waste to working class communities through idleness and addiction, the RSA was looking at the idea as a means of helping to address prevalent economic insecurity.

For eighteen months prior to our first UBI report in 2015, we were interested in UBI as a potential contribution to and support for good work and wider well-being. The idea was that by providing a degree of security allied with freedom, people would be best placed to make better decisions about their own lives. UBI was never suggested as a panacea; rather it was proposed as a helping hand.

As the debate ignited over the past couple of years, as the idea moved from imagination to mainstream, even provoking a sense of regret in a US presidential candidate that the idea wasn’t embraced more readily, so the controversy and misinformation spread. Perhaps inevitably, too many advocates have over-claimed the benefits of UBI and the risks if it is not adopted. Too often, the argument has been preceded by scare stories of mass job-eating robots and UBI as a gateway to a post-work idyll. We accept neither of these overly gloomy or utopian visions.

But opponents have been all too willing to ignore the evidence of what UBI has been in practice – generally beneficial across the board in numerous trials – and too ready with reflexive caricature. For example, the latest economic research on Alaska, which has had a Basic Income style payment – albeit variable as a dividend – in place for over 35 years shows that unconditional, universal cash payments do not reduce employment at all whilst other research has shown they do increase well-being on a whole series of measures. The intensity of the interest wasn’t something we anticipated and it has been a double-edged sword. But time and time again we have returned to our original argument: a carefully implemented UBI would support good work – in the widest sense of the word – rather than usher in a post-work future.

Good and careful implementation is key. That is why we support trials, even when they are not pure ideal type UBI trials, in Finland and Canada. And the decision of the Scottish Government to scope trials is also to be strongly commended. The more understanding of UBI in practice we have, the better. So other trials in Stockton and Oakland in California are welcome too. We hope that, faced with mounting evidence of complete system failure in the UK benefits system, the UK Government will also support trials of alternative approaches involving UBI across the UK.

To secure public support, UBI will have to be developed carefully and in line with many prevailing norms. One of these norms is that people should make a positive contribution to society wherever they can. The argument to be had is with the notion that the hard conditionality of the current system is anything other than counter-productive in service of this expectation. We do not think any job will do and, indeed, that attitude has led to much harm alongside good with an economic price to pay through lack of appropriate skills matching and an absence of mobility for those who are most insecure. Far from an engine of mobility, conditionality creates human misery, insecurity, and locks people in sub-par work or poverty far too much. High employment is necessary but insufficient in combating economic insecurity. A stronger social contract is needed.

Our discussion paper published today is intended to widen the lens on UBI and economic insecurity rather than advocate an intractable position. We accept – as has always been our motivation – that UBI must be designed as a pro-good work institution. And we have always argued that UBI is part of a nexus of interventions including support for lifelong learning, support into work, caring (including childcare), support for workers from unions and professional associations, a genuine commitment to good work and investment in people from more employers, and the right legal framework underpinning good work.

At the core of today’s paper is an idea that we hope anyone interested in the future of work and well-being will engage with. In order to help provide greater security as people need to navigate economic, technological and care challenges in the 2020s, the idea is to provide up to two years of a £5,000 payment for each family member. This will enable people to re-train, try a new business idea, assume caring responsibilities, and perhaps try a new career. It gives people a helping hand to adapt to change; something we don’t believe the current social contract does adequately.

Our primary concern is economic insecurity. In Addressing Economic Security, Atif Shafique offered a new way to think about insecurity: defining it as both an economic and psychological state influenced by a range of interrelated factors beyond merely employment status. This approach questions a notion that has underpinned public policy for quarter of a century, namely that there is a cast-iron equation between having a job and economic security. And Brhmie Balaram and Fabian Wallace-Stephens, in Thriving, Striving, or Just About Surviving?, showed that 30 percent of workers face chronic or acute precariousness with a further 40 percent facing uncertain futures.Access to £5,000 per annum per family member for two years could be just the support that makes a risk manageable or an opportunity worth taking. Think of it as a student grant for basic rate taxpayers and their families.

To fund the ‘Universal Basic Opportunity Fund’ (UBOF), the Government would finance an endowment to cover the fund for 14 years from a public debt issue (at current low interest rates). This endowment would be invested to both fund asset growth and public benefit. The fund could be invested in housing, transport, energy and digital infrastructure and invested for high growth in global assets such as equity and real estate. This seems radical but actually, similar mechanisms have been established in Norway, Singapore and Alaska. In the latter case, Basic Income style dividends are paid to all Alaskans. Essentially, the UBOF is a low-interest mortgage to invest in infrastructure and human growth that brings forward the benefits of a sovereign wealth fund to the present rather than waiting for it to accumulate over time.

These investments would provide returns to support the £5,000 payments to citizens and could be supported by a range of redistributive mechanisms such as corporate levies, high net wealth taxes, equity transfers from leading companies, and we have even suggested exploring a charge on UK data assets that are transferred to global platforms. The maximum cost of the Basic Opportunity Dividend as we have modelled it is £14billion per year. By way of comparison, corporate tax reductions since 2010 are expected to cost the Exchequer £16billion per year by 2020. And the fund will both support physical infrastructure and, if they match the return achieved by Norway’s sovereign wealth fund, would cover half of the cost of the Basic Opportunity Dividend. The following illustrates how this works:

The advantages of this approach are that it is redistributive, it is something that could be done now, it doesn’t lean heavily on income tax, and provides a framing for UBI that is definitively pro-opportunity, pro-contribution and pro-good work. And it’s a large scale Basic Income experiment before full adoption. The economic impacts – and there could be a significant uplift in productivity as people invest in their futures and find the best use for their skills – and social consequences, positive or negative, can be tracked including during an initial four year period when the fund would be available to 25 per cent of the population.

The design principles and funding mechanisms we lay out could allow citizens to make major changes to their lives which they would otherwise be constrained from doing. A low-skilled worker might reduce their working hours to attain skills enabling career progression. The fund could provide the impetus to turn an entrepreneurial idea into a reality. It could be the support that enables a carer to be there for a loved one without the need to account for one’s caring to the state.

UBOF could be the first step towards a new model of social security which puts faith in people to make decisions pertaining to the aspirations that they have for their lives. It represents an investment in human potential; measured not just in GDP or productivity growth but in security, opportunity, creativity, fulfilment and wellbeing also. As a practical means of advancing the UK towards a Universal Basic Income system, the UBOF could represent a stepping stone – to be enacted now – towards a better way of enabling citizens to live meaningful and contributory lives.

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Whilst not directly related to UBI, the options for raising more funds are important. Ideally UBI would be net neutral to the public purse; increasing opportunity and individual economic activity feeding back into the taxation that funded your UBI grant etc. However the need to raise additional public income does need addressing. One of the options which often dismays me is the taxing of net assets. This is rarely explained and oftener ignores liquidity whilst misinterpreting wealth. We need to see wealth (at least financial wealth which is only a narrow definition) as the the ability to but more with what we have. I say this because high personal property values are often confuse with wealth. House prices escalate but having a high priced house doesn't give you either liquidity or net wealth. Typically, if you sell you house the proceeds only give you enough to buy a similar house, not to get a bigger one therefore an increased house value does not represent more wealth. Furthermore, taxing net assets (in this example the market value of your house) takes no account of liquidity and will essentially force people out of their homes into lower value properties in order r to pay the net asset tax. So, whilst the idea fo taxing net assets has some value, it needs to be very carefully framed to ensure that it is the net liquid wealth that is taxed not the capital value of something whose value has not increased in comparison to similar assets.

The report mixes two different but important aspects; the case for UBI and how to find it. For the case for UBI is strong and should create opportunity allowing people to re-train or deal with life challenges with some degree of economic security. It is also interesting to limit it in the first instance to a couple of 'grants' (didn't we used to such an idea .. called student grants!)However I am not convinced by the Fund idea. Setting up a new investment fund will cost a lot in fees and administration and will only succeed as much as assets values increase and the ability to liquidate them is possible. The value of UBI is to society and the public purse , so why not take it our of general taxation and save the fund management fees? (further simplifying the tauten system to take cost out would be beneficial, I doubt people want more taxes but Ian sure they would like better information on how their taxes are spent).

Catherine Raines

1st March 2018

I’m new to this topic and found this article interesting. I’m keen to understand what arguments underpin the amount of money suggested: why £5,000 pa? Why not £10,000 or £2,000? Has there been some thinking that suggests that £5,000 will be the optimum level? Thanks! Catherine Raines

An utterly absurd idea. There is no mention of conditionality so the 'free money' could be used in any way from betting shops onwards. Why is it considered an advantage that the scheme would be redistributive?

Making funds available for retraining is sensible but there are such schemes already. No doubt those who hope to receive the 'free money' will advocate the scheme but those who will have to pay will think otherwise.

I fear that this kind of publication will bring the Society into ridicule.